Groupthink and Denial on a Grand Scale

Eurozone Dystopia traces the origin of the Eurozone and shows how the historical Franco-German rivalry combined with the growing dominance of neo-liberal economic thinking to create a monetary system that was deeply flawed and destined to fail. It argues that the political class in Europe is trapped in a destructive groupthink which prevents it from seeing their own policy failures. Millions are unemployed as a result and the member states are caught in a cycle of persistent stagnation and rising social instability.

Chapter 4: The ‘snake in the tunnel’ reappears

Monograph Chapter

Extract

When President Nixon refused the demands by countries to convert dollars into gold (principally from the UK) on 15 August 1971, the dollar became a non-convertible fiat currency. If all nations had followed suit and floated at that point the world would have been a better place. The unilateral action by the US gave the other nations in the Bretton Woods system three options: (a) fully float their currencies against the US dollar and all other currencies; (b) jointly float against the US dollar, that is, maintain fixed parities between themselves but allow for flexibility against the dollar; or (c) continue to peg to the now non-convertible US dollar. During the mark crisis in May 1971, the Germans had proposed that the EEC Member States arrange a joint float against the US dollar but the French rejected the plan. They were steadfast in their desire to maintain the peg, and used capital controls to reduce the currency fluctuations. The French saw danger in anything resembling a float because it would threaten the subsidies they enjoyed from Germany under the CAP. Before the foreign exchange markets reopened again following the shock announcement by the US to close the gold window and abandon convertibility, the Germans once again proposed a joint float and the French continued their resistance.

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